The Effects of Transformational Leadership on Organizational Performance by Way of Performance Management Systems

Abstract

The role of transformational leadership in the use of performance management systems (PMSs) for enhancing organizational performance is seldom addressed despite significant evidence of its importance in affecting organization design and performance. Based on contingency theory, we seek to fill this research gap by investigating how such leadership style affects the use of PMSs, which subsequently affects organizational performance. In this study, we refer to PMSs in terms of strategic management, communication, and performance measurement. Based on survey data collected from listed companies in Taiwan, the results show that transformational leadership is indirectly related to organizational performance via PMSs. Transformational leadership is also indirectly related to the use of PMSs for performance measurement via strategic management and communication. In addition, the use of PMSs for performance measurement is positively associated with financial performance via the improvement of nonfinancial performance.